India as a New Lifeline for the Defense Industry

5 Nov 2010By John Reed

We've all seen this coming for a while now, with all the talk of India's MMRCA fighter contest and other lucrative weapons deals in the works there, but now that defense budget slashing is really picking up steam in the West, India and other rising Asian powers are becoming all the more important to the defense industry.

From today's New York Times:

India, flush with new wealth but worried about its national security, is rapidly turning into one of the world’s most lucrative arms markets.

In the last several years, as its budget and appetite for more sophisticated weaponry have grown, India has reduced its traditional reliance on Russia for planes, ships and missiles.

The White House is backing sales like the C-17s, which India would use to transport its rapid-response forces, to help make India a regional counterweight to China.

But there is a big trade motive, too. As the United States and European nations trim military spending, the biggest weapons contractors, including Boeing and Lockheed Martin, see India as a sales lifeline.

The article goes on to say that while India is likely to keep growing its defense spending by seven to eight percent a year and is projected to invest between $50 and $80 billion in defense in the next five years, the U.S. still has some hurdles to overcome.

Indian military officials say that trade sanctions imposed after India conducted nuclear tests in 1998 have also put the United States at a disadvantage.Most of the sanctions, which prohibited military exports to India and exports to Indian companies believed to be involved in the nuclear program, were repealed in 2001. But the sanctions have left concerns about Americans. “There is an entrenched view in bureaucracies in India that these guys will turn off the tap,” said Mr. Menon, the retired admiral.

Indian officials are also upset that other technology controls remain in place, including bans on the sale of software that could also be used for weapons. The officials will press Mr. Obama to ease those strictures. Another sticking point could be that India has balked at signing agreements to protect American secrets that are a standard part of any sales.

Yes, this means that U.S. suppliers will face competition from standard Western European competitors along with Russian firms, but as the article points out, American defense businesses must also figure out how to collaborate with domestic Indian firms looking to get a slice of the defense pie.

Still:

As long as India’s economy is booming, American arms suppliers may still make big gains. The cost of weapons is simply not as much a factor as it was just a few years ago, when India relied mainly on Russia for military equipment, said Gurmeet Kanwal, a retired brigadier and the director of the Center for Land Warfare Studies, a research organization in New Delhi.

American technology is seen as the “top of the top,” he said, and “we should aim to pay a little more for the best equipment.”